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Forty years ago today was the last day the citizens of Israel were a free people in their own land. It was the last day we lived here without living other people's lives. After that day, we started paying the price for living the lives of others.

German director Florian Henckel von Donnersmarck recently explored that price in his acclaimed movie "The Lives of Others" on the modus operandi of the Stasi - communist East Germany's secret police.

The threat that hovered over Israel on June 4, 1967, pertained to its actual survival. It erased from our consciousness the knowledge that our lives here used to be different. Four decades of creeping annexation and 20 years of violent confrontation contributed to this amnesia.

And so, our victory on the battlefield - which was meant to make our lives better and safer - is making both our lives and the lives of others miserable. The year 1966 saw an important chapter in Israel's short existence. It was also an important point in the Jewish recovery from the feeling of siege. In early December, Levi Eshkol's cabinet canceled the military rule that was practiced in Israel, based on the British Mandate's regulations.

In doing so, the government lifted the main hurdle that prevented Israel's Arab population from leading normal lives. Six months later, the government proceeded to make the Green Line indistinct, blurring the distinction between Israel proper and the recently conquered territories.

Subsequently, many Jews began regarding the Arabs of towns such as Baka al-Garbiyeh on the Israeli side of the Green Line much the same as the Arabs of Baka al-Sharkiyeh, which used to be on the Jordanian side. Recently healed wounds were reopened, and an incipient sense of identity began to fragment.

The need to exert authority over the large and alien population of the territories forced the government to recreate the military rule it had just abolished, and to employ it in the territories - tactics and methods included.

Professor Yeshayahu Leibowitz did not need 40 years to realize that this would transform Israel to a secret-police state, and the Israel Defense Forces into an "occupation army." As early as spring 1968, he warned against the occupation's effects on education, freedom of speech and thought, and on the democratic nature of the government.

Leibowitz predicted that the corruption that is characteristic of any colonialist regime would not spare Israel. He also warned against the collapse of social structures and the corruption of man - Arab and Jew alike.

But even the Jerusalemite prophet of apocalypse did not predict the scale of corruption and the corruption of values that the settlement enterprise generated, and the extent of the apartheid regulations that would allow and encourage the theft of lands.

No one could have foreseen the extent to which this enterprise damaged Israel's internal cohesion, nor could anyone have predicted the degree to which it compromised Israel's standing in the eyes of the free world.

In June 1967, tiny Jerusalem accommodated 13 foreign embassies. Following the passing in 1980 of the Basic Law on Jerusalem the Capital of Israel, the city was orphaned of all its embassies.

It has been suggested that the Palestinian territories expanded the security margins that "tiny" Israel had. Few recall that in the mid-1960s, several months before the war broke out, the government saw fit to reduce mandatory military service for men by two months. Very few soldiers benefited from this because the security challenges of the occupation forced the government to increase service by 14 months - putting it at three years.

But that's not all. During the Second Lebanon War, the citizens of Israel proper, within the Green Line, paid a steep price for the deterioration of the IDF's abilities. This was a result of its employment as a police force in the territories that Israel conquered in June 1967. This involved guarding the property of Jewish land robbers.

As the years progressed, short-sighted Israeli politicians and Jewish religious leaders transformed "the fight for home" into "the fight for other people's home."

It is true that there were times when the other side was unwilling to discuss anything, not even the borders of June 4, 1967. But nowadays, the 22 member states of the Arab league declare that they view this border as a basis for peace - an accomplishment no one would have dreamed of 40 years ago.

And so, Israel is missing the opportunity to transform its military victory into its biggest achievement ever. It is losing the war of independence from controlling the lives of others.